Friday, September 28, 2018

Chris Mayer Interview: World According to Boyar Podcast

Boyar Value Group recently started doing a podcast entitled The World According to Boyar.  In it, they'll conversations with top investors, authors, and businesspeople.  Their first guest was Chris Mayer, author of How Do You Know as well as the investing book: 100 Baggers.  He is the Chief Investment Strategist of Bonner & Partners.  Here's some notes from the podcast as well as the full podcast audio embedded below:

Chris Mayer Interview on Boyar Podcast

- On 100 Baggers, it's basically taking the concept of a 10x return on a stock from Peter Lynch and adding a zero to it, to find the cream of the crop in terms of investment returns.  Mayer looked at all stocks that returned 100x from 1962 to 2014 to find common characteristics.  It returned 365 stocks and the best performing stock of all was Berkshire Hathaway.

- His biggest takeaway was that: return on invested capital is the most important factor.  If you compound at 25% a year for 25 years, that's a 100 bagger.  But that's also an extremely large feat.

-  The returns can often be back-end loaded so patience is one of the most important factors.  The psychology of watching prices head higher and higher and being tempted to sell often keeps people from holding on.  On the other side of the equation, the other problem is during those 100 baggers, you have to often survive multiple big drawdowns.  So psychology plays a big part in being able to withstand the swings.

- Coffee Can Portfolio:  Idea from Journal of Portfolio Management.  Investor just bought a small portfolio of stocks and just didn't touch them for 10 years and performed extremely well, much better than someone who bought the same stocks but actively sold positions.  Mayer named Howard Hughes (HHC) as a stock that could be an example today.  He bought it in 2011 and hasn't sold any shares since.  Another he likes is Fairfax Financial in Canada.

- How Do You Know: A Guide to Clear Thinking About Wall Street, Investing & Life is his new book that's not necessarily a traditional investing book but it's about how you know what you know.  You shouldn't try to know or explain every single little move a stock makes.

Embedded below is the full podcast of Boyar's interview with Chris Mayer:

We also recently posted up some complimentary equity research from Boyar if you missed it.  They've analyzed three stocks they feel have high upside and those reports are available for free: CHTR, BEN, STKL.

Thursday, September 27, 2018

Howard Marks' New Memo: The Seven Worst Words in the World

Oaktree Capital Chairman Howard Marks has released his latest memo entitled "The Seven Worst Words in the World."  He starts the memo with a reminder that his new book comes out next week: Mastering the Market Cycle: Getting the Odds on Your Side.  His first book was excellent, so we're looking forward to this one too.

The words he's referring to in the title of his latest memo are: "Too much money chasing too few deals."  He uses this quote as a starting point for his thoughts on the market today.  Basically, he notes that the recovery from the recession with loose monetary policy has lasted ten years, and as such:

"While there certainly is no hard-and-fast rule that limits economic recoveries to ten years, it seems reasonable to assume based on history that the odds are against a ten-year-old recoverycontinuing much longer."

He feels the requirements have been met for a frothy market and has a cautious stance.  While he acknowledges things can go on for a bit longer, there are many conditions flashing warning signs.  Read on to ascertain why.

Embedded below is Howard Marks' latest memo, The Seven Worst Words in the World:

You can download a .pdf copy here.

Be sure to also check out Howard Marks' brand new book that is coming out: Mastering the Market Cycle: Getting the Odds on Your Side.

Tuesday, September 25, 2018

Complimentary Equity Research From Boyar on CHTR, BEN, STKL

We wanted to give readers a head's up that Boyar Research is currently offering complimentary equity reports on three stocks.  They consistently put out high quality research and this time around they look at one popular hedge fund name, and two other names you might be less familiar with.

Boyar sees 60% upside in each of these companies. You can read the full write-ups for free here and we've excerpted some of the reports below with permission:

Charter Communications (CHTR)

"We view Charter as a best-in-class operator in the midst of multiple transitions that should unlock faster growth in the coming years. Charter ramped up investment in the TWC and Bright House assets it acquired in 2016, which should result in lower capital intensity, lower churn, and incremental cost savings/margin expansion going forward. We estimate that video will account for < 20% of Charter’s consolidated revenues, net of programming costs, by 2019. Meanwhile, Charter holds a near-monopoly on high-speed Internet over much of its footprint, and its commercial business continues to grow at or near double-digit rates.

We project that Charter can grow Adjusted EBITDA from $15.3 billion in 2017 to $20 billion by 2022. Assuming no expansion in Charter’s forward EV/EBITDA multiple, we estimate that Charter’s intrinsic value could exceed $500/share by year-end 2021. Charter already retired 12% of its shares in 2017 and could have the capacity for ~$28 billion (a third of the current market cap) in additional repurchases over the next 4 years. Finally, we believe that Charter and indeed cable companies generally are in a better position than wireless operators to support the development of 5G, and Charter remains a likely seller over the long term."

You can read their full analysis of CHTR here.

Franklin Resources (BEN)

"Following a decline of more than 25% in its share price from recent 52-week highs, BEN now trades at just 1.2% of its AUM (adjusted for its large cash hoard of ~$8.5 billion of net cash/investments, or ~50% of its current market cap), representing a significant discount to industry precedent transactions, which have occurred at 2.7% of AUM, on average, over the past ~10 years.

Since the beginning of FY 2007, BEN has returned $15.1 billion to shareholders via repurchases and dividends/special dividends, representing 87% of its current market cap and an astonishing 178% of its current enterprise value. Returns to shareholders will likely continue to be robust thanks to the Company’s newfound liquidity, the result of the new U.S. tax law, which offers lower federal tax rates and more favorable repatriation features. In the wake of the passage of the new tax law, Franklin has paid a special dividend, increased its regular dividend by 15% to $0.92 a share (yield: 2.9%), and accelerated the pace of its share buybacks.

Based on our assumption that the Company’s AUM will increase at just a 2.5% annual rate over the next 2 years, and valuing BEN at a discounted 2.5% of AUM, we derive an intrinsic value for the Company of $55 a share, representing 74% upside from current levels. Should the value versus growth pendulum or the active versus passive pendulum shift in Franklin’s favor, our intrinsic value estimate will likely prove extremely conservative.

We believe that Franklin represents an attractive target for a financial services firm given its strong brands, favorable long-term investment track record, and strong global distribution. Moreover, the Johnson family’s ~40% stake, coupled with BEN’s strong balance sheet, could help facilitate a management buyout." 

Click here for the rest of their complimentary BEN research.

SunOpta (STKL)

"SunOpta is in the early stages of a multi-year turnaround that is expected to drive growth, increase profitability, and unlock shareholder value. The Company’s turnaround is being overseen by a new chairman and CEO, both of whom have a proven track record of unlocking shareholder value in the consumer products industry. Notably, SunOpta’s chairman recently presided over the value creation at AdvancePierre Foods for Oaktree Capital (a 23-bagger for that firm).

The Company operates in the attractive market for organic and non-GMO ingredients and consumer products, which is growing at a high single-digit/low teens (%) rate. The increasingly important millennial generation is expected to be a key factor sustaining future industry growth, as millennial parents are the largest purchasers of organic products in the U.S.

The prospect for increased private label penetration bodes well for SunOpta, which has a low-cost advantage over its peers thanks to its integrated sourcing and manufacturing business model.

In late 2016, SunOpta received an $85 million investment from Oaktree Capital, which has continued to increase its stake in the Company, acquiring nearly $60 million in STKL shares via open market purchases during 2017 at an average price of $7.36 a share.

Applying a discounted multiple, relative to precedent transactions, to our 2020E EBITDA, we derive an intrinsic value of $12 a share, representing 65% upside from current levels. Management is heavily incentivized to unlock shareholder value, as the CEO holds ~750k of performance-based stock options/units that vest at various increments/stock prices between $11 and $18 a share."

Read the free report on STKL here.

Monday, September 24, 2018

Charlie Munger Interview: China's Weekly on Stocks

Charlie Munger of Berkshire Hathaway and Li Lu of Himalaya Capital were recently interviewed a few months ago with Chinese media: Weekly on Stocks.  If you're unfamiliar, Lu is Munger's investing partner in China, where he has been investing for 15 years.  We've also posted Li Lu's interview up in a separate post.

Here are a few excerpts from the interview, with full videos below.

Charlie Munger Interview With Weekly on Stocks

Munger's opinion on Chinese securities:  "For investors, having more value means buying the best company in China or buying the best company in the United States. Comparing the two securities markets in China and the United States, I think the current price of the best companies in China is cheaper than the best companies in the United States. Therefore, Chinese people do not have to go abroad to find good investments, and there are many opportunities in their own countries. There are some very good companies in China and the prices are very reasonable."

When asked if he can name specifics:  "Hey, we can't tell you (laughs). In short, the Chinese market is increasingly open to foreign investors, with more and more participation from abroad, and the market is becoming healthier. These are all very good and will eventually drive up market prices."

On whether Berkshire's circle of competence is expanding with recent tech investments:  "At present, it is difficult for Berkshire to find good and low-priced investment products in the US market. We have hardly found anything suitable. All in all, you can also say that Apple is an electronic consumer goods company. Warren said that we may know more about consumer electronics than computer science, which is why Berkshire bought Apple stock.  Also emphasize another reason why we do this. If you want to be a good investor, you must keep learning. In the process of continuous learning, the situation is changing, the reality is changing, our investment will change, and we will not be self-sufficient."

Will they make more tech investments going forward?  "We don't know everything, we don't know how to understand, we only do what we know. The only company we have announced that has already invested is Apple. I think Warren said that we know Apple better than other companies. We can't know everything, so we invest in investing in assets that we can find to provide good value.  Take a look at our investment in airlines. In the past few decades, we have been joking with investment airlines. Warren has a lot of jokes in this area.  But suddenly, we bought stocks of each airline, because the airline's stock price has fallen sharply, it is so cheap, very potential. The conditions have changed and we are all willing to own airline stocks.  Like airlines, Warren and I don't like railroad stocks for decades. After a few decades, we began to buy shares in the railway, because the world has changed and the technology has changed. In the end, there are only four large railway companies. Finally, we bought the largest and most complete railway company among the four.  We changed because the world has changed. This is our investment logic. When the reality changes, shouldn't your thoughts change?"

Embedded below are the videos:

Charlie Munger Interview Videos

Video 1
Video 2
Video 3

Be sure to also check out the separate Li Lu interview we posted here.

The transcript of Munger's interview (in Chinese) is here.  H/T to @TaoValue for posting the videos.

Li Lu - Himalaya Capital Interview: China's Weekly on Stocks

Li Lu of Himalaya Capital was recently interviewed by Chinese media Weekly on Stocks.  If you're unfamiliar, Lu is Charlie Munger's investment partner in China and Munger has invested in Lu's fund for quite some time.  Charlie Munger was also interviewed, and we posted that up separately.

Li Lu Interview With Weekly on Stocks (China)

Li Lu on Munger/Buffett: "And so it is precisely their indifferent attitude towards personal interests that they have achieved such a long term performance success."  "Everyone is envious of Berkshire but no one is willing to learn their indifference to personal interests."

Lu on his fund:  He charges no management fee and has a 6% hurdle, modeled after the original Buffett partnerships.

Lu on investing:  "The investment itself is a prediction.  The prediction is indeed the result of a comprehensive combination of capabilities.  How to perform is the extension of conduct, so one's character, knowledge, and mentality really affect the long-term results.  There is no doubt about this."

"If you do this simply for the purpose of making money, it is almost impossible to achieve extraordinary long-term performance."

"Instead the key is that the most important thing for investment is to invest in anything you know and to avoid anything you don't know."

On the ongoing evolution of China's market:  "Three transformations: indirect finance to direct finance, debt dominance to equity dominance, and policy finance to market finance.  Then the whole financial market is gradually transformed from a disordered state like a gambling house to a relatively long term rational and sound decision."

On good investor characteristics:  "An excellent investor indeed should be honest to knowledge but not to the opinions of others.  Indeed this is actually somewhat against the humanity for us as social animals.  Indeed it is like this for us it is very important whether our evidence and logic is correct than whether others agree with you is not so important... An excellent investor has somewhat anti-human characteristics."

"The most important part in investment is objectivity and reasonability.  And the second is a deep understanding of intellectual honesty... That is to know what you really understand."

Embedded below are the videos:

Video 1

Video 2

For more on Li Lu, be sure to also check out a previous Columbia Business School interview with Li Lu.

H/T to @TaoValue for posting the videos.

Lone Pine Capital Increases Wynn Resorts Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its position in Wynn Resorts (WYNN).  Per the filing, Lone Pine now owns 5.4% of the company with over 5.95 million shares.

This is up from the 3.79 million shares they owned at the end of the second quarter of this year. The filing was made due to portfolio activity on September 10th.

Wynn Resorts owns, operates, and develops casino resorts, primarily in Las Vegas, Nevada and in Macau.